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TMI Blog2013 (9) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... required. Even the sale consideration agreed upon between the parties including the consideration on account of non-compete covenant was paid in installment over a period of time. Further the transfer of shares in effect translated into renunciation of management by the seller Directors in favour of the purchaser which is apparent from Article 5.1.1 of the agreement which enunciated the delivery of effective resignation in writing by the Directors as part of the activities of the completion. The next point under consideration is the non-compete covenants agreed upon between the parties as per Article 8, under which Article 8.4 clearly stated the seller agrees not to engaged in any call centre, business process outsourcing or IT enabled services business in the States of Chandigarh, Punjab, Haryana or Himachal Pradesh within a radius of 100 Kms from Chandigarh for a period of 2 years from the date of this agreement. Further non-compete covenants imposed a restriction upon the seller Directors to directly or indirectly solicit a business that the company has done since its inception without prior written permission of the company. Under Article 8.10 there was renunciation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o addressed the case laws cited by the learned D.R. for the Revenue on the last date of hearing. We proceed to dispose off the present appeal after hearing the ld. DR for the revenue and the written submissions filed by the assessee. 4. The issue raised in the present appeal is in relation to the computation of income on account of sale of equity shares which was declared under the head capital gain by the assessee and was assessed as business income by the AO. The facts of both the parties are identical, however, reference is made in ITA No. 1101/Chd/2009 for adjudicating the issue. 5. Brief facts of the case are that during the year under consideration the assessee had declared income from short term and long term capital gains amounting to ₹ 38,88,426/- in addition to income from business and income from other sources. The assessee had declared long term capital gains on sale of non-listed securities i.e. Excel Callnet Pvt Ltd which as per the assessee were sold on 24.5.2005 for total consideration of 44,18,000/-. The cost of purchase was declared at ₹ 4,70,000/- and capital gain of ₹ 39,48,000/- was declared as income from long term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is further strengthened by Article 5.1.1. of the Agreement which clearly enunciates that the delivery of effective resignation in writing by the Directors (in this case Shri Sumit Taneja) as a part of the activities of completion. (3) The transaction would entail handing over responsibilities to the purchasers including employee and product data base, customers support contracts, verbal commitments as well as new clients' proposals. (4) Article 8 - Non Compete covenants is extremely pertinent. Article 8.4 very clearly states that the transfer of shares would also entail renunciation of rights in not only the company M/s Excel Callnet Pvt Ltd but also a blanket ban on engaging in any call centre activity by the sellers within a radius of 100 Kms from Chandigarh of a period of 2 years. The extract is reproduced as under: The seller agrees not to engaged in any call centre, business process outsourcing or IT enabled services business in the States of Chandigarh, Pujab, Haryana or Himachal Pradesh within a radius of 100 Kms from Chandigarh for a period of 2 years from the date of this agreement. (5) This agreement also imposes upon the sellers a restricti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding and is exercising control over the supervision and management of the company. That is why there is a clause of non-interference (Article -2) of the appellant in the day-to-day management of M/s Excel Callnet Pvt Ltd. The second plea of the assessee that the shares of the company were capital asset and not business asset was also rejected by the CIT(A) observing that - it was not a case of simple transfer of shares. Here the transfer of shares from the appellant to M/s Pugmarks Interweb Pvt Ltd is under an agreement with the stipulation that the assessee would not carry out any activity in relation to any business of call centre nor would he interference in any matter nor he would do similar business within 100 Kms from Chandigarh nor he would use the brand name of M/s Excel Callnet Pvt Ltd. The assessee is in appeal against the order of the CIT(A). 8. The ld AR for the assessee in the written submissions has pointed out that the assessee has purchased 47000 shares of Excel Callnet Pvt Ltd at ₹ 10/- each on 28.3.2002 and the said investment was reflected in his balance sheet from year to year. The said shares were sold in the month of May, 2005 vide share purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submissions filed by the learned A.R. for the assessee and the submissions made by the learned D.R. for the Revenue, we proceed to dispose off the present appeal. The only issue arising in the present appeal is in respect of the treatment of the amount received on sale of equity shares of the private limited company held by the assessee, which were transferred during the year under consideration. The plea of the assessee in respect of the said transaction is that it is a mere sale and purchase of investment held by the assessee and consequently gain arising on the said transaction is to be assessed under the head income from capital gains. The authorities below, however have assessed the said gain as income from business and profession under section 28(va) of the Act. The assessee held 47000 equity shares of ₹ 10/- each of M/s Excel Callnet Pvt. Ltd. which were purchased on 28.3.2002. The said shares were transferred @ ₹ 94/- per share to M/s Pugmarks Interweb Pvt. Ltd. on 24.7.2005. The Managing Director /Director of M/s Excel Callnet Private Limited i.e. both the assessees before us had 50 % share holding in the said company and were the brain behind the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o communicate new signatories to the bank, any cheque signed by the continuing Directors shall be counter-signed by either of exiting Directors as an obligatory duty during this period. 11. As per Article-3 of the said agreement, consideration per share for sale of shares by the seller to the purchaser was fixed to ₹ 94/- which included non-compete premium per equity share of the company. As per clause 3.4 the purchaser i.e. M/s Pugmarks Interweb Pvt. Ltd. released token advance money of ₹ 5 lacs and the additional ₹ 8 lacs was to be paid by 18.4.2005. The balance would be paid within a period of eight weeks from the date of the Agreement. Under Article-4 the effective date would be from the date provided however the obligation of the parties was to complete the transaction of sale and purchase subject to and conditionally upon the other party fulfilling its obligation to proceed to completion. 12. Article 4.2 provides as under: 4.2 The Purchasers and Sellers shall expeditiously apply for and diligently pursue and use all reasonable endeavours to obtain any applicable consents, permission or approvals (together the Approvals ) as may be req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of agreement. The seller also agreed not to solicit business of the company done since its inception without prior written permission of M/s Pugmarks Interweb Pvt. Ltd. Various other non-covenant clauses were agreed between the parties as per Articles 8.1 to 8.6 under which the sellers were stopped from soliciting the business carried by them. Certain misc. business items were covered thereafter as part of the agreement i.e. for the handing and taking over of the business by the shareholders to M/s Pugmarks Interweb Pvt. Ltd. Further statement of Shri Kulwinder Singh Suri, Managing Director of M/s Pugmarks Interweb Pvt. Ltd. was recorded on 28.11.2008 in which he admitted that he had 45% shares in M/s Pugmarks Interweb Pvt. Ltd. In respect of the transaction with M/s Excel Callnet Private Limited the deponent stated that the transactions to buy shares in M/s Excel Callnet Private Limited was completed in May, 2005 and 47500 shares were purchased from Shri Harbir Singh for total consideration of ₹ 44,65,000/- and 47000 shares from Shri Sumit Taneja for total consideration of ₹ 44,18,000/-. Reference was made to the agreement between the parties in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y-today management of the business from the date of the agreement. In addition, the sellers i.e. the shareholders of the company were to hand over the Employee Database, Products Database, Customer Support, New Client proposals in pipeline, Other prospects and customer's database, Payment Recovery and Customer. Management cases, Contract, Verbal Commitments, Banking Information, software/licenses and any other property that was acquired under the tenure of the Sellers working with the Company. Because of the complexity of the handing over operation by the sellers i.e. the shareholders of the company to the Managing Director of the new company, the parties entered in to agreement on 26.3.2005 and had completed the process on 24.7.2005. If it was a mere sale of the investment by way of shareholding by the assessee then the said exercise was not required. Even the sale consideration agreed upon between the parties including the consideration on account of non-compete covenant was paid in installment over a period of time. Further the transfer of shares in effect translated into renunciation of management by the seller Directors in favour of the purchaser which is apparent from Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mode of holding in the said company by the assessee, of which he was the Managing Director and was also engaged in carrying on the business on day-to-day basis. Such investment was in the business being carried on by the assessee and in view of the terms of the agreement agreed upon between the parties i.e. non-payment of upfront share price of the shares sold by the assessee and the fixation of the agreed sale price of the shares which was not in consensus with the market price tabulated from the results shown by the assessee and also non-compete covenants agreed upon by the assessee and other shareholders for carrying on the business of BPO in the specified area of Chandigarh, fully support the view taken by the authorities below. In the entirety of the facts and circumstances, we are in agreement with the orders of the authorities below that the gain arising from the transfer of share is to be assessed as income from business. The provisions of section 28(va) of the Act are squarely applicable to the present facts of the case. Consequently, the ground of appeal raised by the assessee is dismissed. 18. The facts and the issues arising in ITA No.1102 /Chd/2009 are simil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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